FXStreet (Delhi) – Michael Every, Research Analyst at Rabobank, suggests that in December markets generally drift into a warm, fuzzy holiday mode where relatively little of note happens but this year, next month is likely to keep us all as busy as the most diligent of Santa’s elves.
Key Quotes
“We start with China. Friday saw another plunge in the Shanghai composite (-5.5%%), showing the stability achieved since the last rout wasn’t based on fundamentals (e.g., industrial profits -4.6% y-o-y); as the authorities crack down on margin lending and short selling, expect equities to stay wobbly.”
“Today will apparently also see the inclusion of CNY in the IMF’s Special Drawing Rights (SDR) basket. As we’ve covered in recent specials, the IMF can do that but it can’t force people to then hold CNY – Friday’s equity drop along with worries about bubbles in the bond market underline that shift will take time. Indeed, we’ve long argued that post-SDR CNY is likely to get weaker, not stronger, and indeed CNH is at 6.45 this morning vs. 6.35 at the end of October even if CNY remains more tightly controlled at 6.39.”
“Tensions between Russia and Turkey continue to rise, with the former instituting a series of economic sanctions including a ban on tourist travel to Turkey (where Russians make up 10% of arrivals) and as yet unconfirmed extra border checks on some Turkish agricultural exports. One can likely expect further weakness in TRY in response. Moreover, this step (as well as the recent Paris tragedy) underline that, as in the past, “FX Wars” are occurring alongside political tensions that could threaten the era of ever-increasing free-trade/freedom of movement we take for granted.”
“This morning’s Japanese data were mixed. Industrial production was 1.4% vs. 1.8% expected (and -1.4% y-o-y) while retail sales bounced back 1.1% in October vs. 0.3% consensus and are now up 1.8% y-o-y. In other words, Q3 looks a wash out but Q4 has started better. That may keep the BOJ ‘on hold’ at ultra, ultra-easy for longer even if core CPI is just 0.7% y-o-y and declining.”
“In Australia inventories rose 0.1% q-o-q, which while slightly better than expected is not going to compensate for the big fall in capex in Q3 we’ve already seen (which will hopefully snap the RBA out of their we-don’t-get-the-new-normal “non-mining business investment will pick up” complacency).”
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